The next crisis

1—The next crisis

The UK pension crisis came and went almost as quickly as Liz Truss' Chancellor, Kwasi Kwarteng, who was sacked just 38 days after releasing the country's disastrous 'mini budget'. But with rates rising, another crisis could happen at any moment. According to Robert Burgess, US Treasuries are looking vulnerable:

"The word 'crisis' is not hyperbole. Liquidity is quickly evaporating. Volatility is soaring. Once unthinkable, even demand at the government’s debt auctions is becoming a concern. Conditions are so worrisome that Treasury Secretary Janet Yellen took the unusual step Wednesday of expressing concern about a potential breakdown in trading, saying after a speech in Washington that her department is 'worried about a loss of adequate liquidity' in the $23.7 trillion market for US government securities. Make no mistake, if the Treasury market seizes up, the global economy and financial system will have much bigger problems than elevated inflation.
...
A Bloomberg index shows liquidity in the Treasury market is worse now than during the early days of the pandemic and the lockdowns, when no one knew what to expect. Similarly, implied volatility as measured by the ICE BofA MOVE Index is near its highest since 2009. And in an unusual development that shows just how dysfunctional the Treasury market has become, the newest, most liquid securities, known as on-the-run notes, trade at a discount to older, tougher-to-trade off-the-run securities."

Billionaire investor Warren Buffet once quipped that it's "only when the tide goes out do you discover who's been swimming naked". The decade-long tide of declining interest rates is going out, and it looks like many people and governments may have long ago shed their bathers:

"All this is coming as Bloomberg News reports that the biggest, most powerful buyers of Treasuries – from Japanese pensions and life insurers to foreign governments and US commercial banks – are all pulling back at the same time."

You can read Burgess' full post here (~4 minute read), which concludes that the US Fed's monetary tightening might be closer to breaking something than its members believe.

2—Burning horse dung

It's going to be a long winter for Europe:

"For many Europeans, the key concern is doing whatever it takes to stay warm in the coming months. The worry has become ever more pressing as the winter chill gets nearer, and the desperation for heat could create health and environmental issues.

'We are worried that people will just burn what they can get their hands on,' said Roger Sedin, head of the air quality unit at the Swedish Environmental Protection Agency, warning against poor ventilation and trying to burn wet firewood. 'We can see very high pollution levels when you have people burning wood who don’t know how to do it correctly.'

Particulate matter can end up deep in the lungs and cause heart attacks, strokes and asthma, he said, adding that the risk is particularly acute in urban areas.

'You need to think about your neighbors,' Sedin said.

Inexperience is also evident in Germany, where the country's association of chimney sweeps is dealing with a flood of requests to connect new and old stoves, and customers are inquiring about burning horse dung and other obscure fuels."

That's from Fortune (~3 minute read) reporting on the "growing anxiety across Europe as the continent braces for energy shortfalls, and possibly blackouts, this winter".

Unfortunately for Europeans the crisis might not end when Spring arrives, with markets "currently pricing in three tough winters for Europe".

3—Ouch

4—Land use in Utopia

Would a socialist economy have more affordable housing than our mix of markets and government produces? Not if local zoning rules still restrict supply:

"[T]he whole point of these supply/demand charts is to try to characterise how things work in a market-ish economy. What the leftists want is to not have an economy like that. That's fair enough. But I think it's important to understand that even if you completely assume away landlords, private builders, and market incentives, local control of planning still almost always leads to harmful shortages. Different parcels of land are different in terms of their desirability, and that's just as true under socialism as under capitalism."

So writes Matthew Yglesias, who goes on to imagine a utopian, post-scarcity future world where everything can be replicated except for "really big stuff like the structural components of starships". In that world housing can be built for free, but:

"It doesn't follow automatically that everyone has a place to live with gorgeous views of French wine country. Because even though the Federation could assemble more homes where there are currently vineyards, that would by definition spoil the view of the vineyards".

Land can't be replicated and under socialism no one owns it, so "whether you get it by queuing or by administrative fiat, there is still a divergence between the fortunate few who get the best locations and everyone else".

So how is land use determined? By the locals who got there first:

"So the decisions about what to build, or not, in the vicinity of Chateau Picard are made by the people who already live near Chateau Picard. Since those specific people need to bear the downsides of extra house-building while deriving very few benefits, they tend to lean against approving new development. This is harmful on net, but most of the harms are accrued by people who don’t get a say in the community control process.

The result is that the Federation as a whole ends up much poorer than it otherwise might be."

You can read Yglesias' full post here (~8 minute read), in which he points out that we already have the technology to make society much better off, "But legal barriers to deploying the technology prevent us from living in utopia, a problem that could easily recur in any kind of society regardless of how its economy is organised."

5—Further reading...

😷 China's dynamic zero-COVID looks set to carry on after state media claimed that the policy is "the most cost-effective one that works best for the country and virus response measures will continue to be more scientific and precise".

🚀 The Australian government wants "to urgently begin manufacturing its own missiles, saying the war in Ukraine has demonstrated the need for supplies to be available swiftly and not dependent on imports".

♟️ Hans Niemann isn't doing so well at the 202 US Chess Championship, which increased its security screenings after all of the cheating controversy.

🍺 Pubs in the UK are offering people deals to "Work From Pub", providing a place to work along with "lunch and a drink (non-alcoholic beverages are also available)", with unlimited tea and coffee.